Debtor Protection and Business Dynamism

Journal of Law and Economics, Forthcoming

TILEC Discussion Paper No. 2018-037

48 Pages Posted: 10 May 2019

See all articles by Geraldo Cerqueiro

Geraldo Cerqueiro

Catolica-Lisbon SBE

María Fabiana Penas

Universidad Torcuato Di Tella

Robert Seamans

New York University (NYU) - Leonard N. Stern School of Business

Date Written: February 27, 2019

Abstract

We study the effect of debtor protection on business dynamism. We find that greater debtor protection, in the form of more lenient personal bankruptcy laws, increases firm entry only in sectors requiring low startup capital. We also find that debtor protection increases firm exit and job destruction rates among young small firms. This negative effect takes three years to materialize, and is persistent in time. Finally, we provide evidence consistent with two mechanisms underlying these changes in business dynamism: a reduction in credit supply and entry of lower quality firms following increases in debtor protection.

Keywords: Debtor Protection, Personal Bankruptcy, Entrepreneurship, Business Dynamism, Firm Dynamics

JEL Classification: G33, K35, M13

Suggested Citation

Cerqueiro, Geraldo and Penas, María Fabiana and Seamans, Robert, Debtor Protection and Business Dynamism (February 27, 2019). Journal of Law and Economics, Forthcoming; TILEC Discussion Paper No. 2018-037. Available at SSRN: https://ssrn.com/abstract=3212790 or http://dx.doi.org/10.2139/ssrn.3212790

Geraldo Cerqueiro

Catolica-Lisbon SBE ( email )

Palma de Cima
Lisbon, 1649-023
Portugal

María Fabiana Penas (Contact Author)

Universidad Torcuato Di Tella ( email )

Saenz Valiente 1010
C1428BIJ Buenos Aires
Argentina

Robert Seamans

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

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